Saturday, March 06, 2010

CINCINNATI (TDB) -- And we thought the payday loan industry was history. Check out the accompanying graphic. There's a sentence that says, "The Transaction Fee is $1 for every $10 borrowed. This equates to an Annual Percentage Rate (APR) of 120%." That's not from a Mafia loan shark. It's from a national bank based in Cincinnati. Not only have payday loan stores like Check 'n Go and CheckSmart managed to survive a 2008 Ohio law capping the annual percentage rate on their loans at 28 percent, but now banks have gotten into the act. Only they don't call them "payday loans." Instead they're called "Early Access" advances by Fifth Third Bank, which fronts up to $500 to customers with direct-deposit paychecks, and "Checking Account Advances" at rival USBank.

Whatever they're called, they're pretty much what the payday lenders offer to people who can prove that they have regular income and a checking account. The Ohio General Assembly, Gov. Ted Strickland and Ohio voters thought they had strangled the payday loan industry by cutting maximum APRs from 391 to 28 percent. But lenders of all sort found ways around the law by charging loan origination fees, redefining loans as advances and using their national bank charters to shield themselves from the state interest rate cap. The APR at Fifth Third and USBank is sky high and, as Fifth Third admits in its terms and conditions, "This is an expensive form of credit."

Consumer groups have assailed payday lenders as predators of the working classes, but bank overdraft fees are awfully predatory, too. Facing more pressure from regulators to rein in their highly profitable fee programs, banks are now steering their checking account customers into payday loans. By the time all banks complete that transition, Ohio could have more payday loan outlets than ever. But they'll be known as banks.

2 comments:

The Payday Loan Reform defined such loans as lasting only 120 days. The idea being that a customer, who might be in a financial pinch, takes out the loan and pays it off out of his or her next few paychecks. Payday Loans